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Testing for linear and nonlinear Granger causality in the real exchange rate–consumption relation

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  • Pavlidis, Efthymios G.
  • Paya, Ivan
  • Peel, David A.

Abstract

International real business cycle models predict a relationship between real exchange rates and consumption. This prediction is not supported by the empirical literature. In a new approach, we apply nonlinear Granger-causality tests to data for 14 OECD countries.

Suggested Citation

  • Pavlidis, Efthymios G. & Paya, Ivan & Peel, David A., 2015. "Testing for linear and nonlinear Granger causality in the real exchange rate–consumption relation," Economics Letters, Elsevier, vol. 132(C), pages 13-17.
  • Handle: RePEc:eee:ecolet:v:132:y:2015:i:c:p:13-17
    DOI: 10.1016/j.econlet.2015.04.008
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    References listed on IDEAS

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    7. Pavlidis Efthymios G. & Paya Ivan & Peel David A., 2013. "Nonlinear causality tests and multivariate conditional heteroskedasticity: a simulation study," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(3), pages 297-312, May.
    8. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 533-563.
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    Cited by:

    1. Yao, Can-Zhong & Lin, Qing-Wen, 2017. "Recurrence plots analysis of the CNY exchange markets based on phase space reconstruction," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 584-596.
    2. Daiki Maki & Yasushi Ota, 2019. "Robust tests for ARCH in the presence of the misspecified conditional mean: A comparison of nonparametric approches," Papers 1907.12752, arXiv.org, revised Sep 2019.
    3. Okwu, Andy & Akpa, Emeka & Oseni, Isiaq & Obiakor, Rowland, 2020. "Oil Export Revenue and Exchange Rate: An Investigation of Asymmetric Effects on Households’ Consumption Expenditure in Nigeria," MPRA Paper 102080, University Library of Munich, Germany.

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    More about this item

    Keywords

    Nonlinear Granger causality; Real exchange rates; Consumption; Heteroskedasticity robust test;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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